Resource title

The threat of capital drain: a rationale for public banks?

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Resource description

This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility.

Resource author

Hendrik Hakenes, Isabel Schnabel

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26895

Resource license

Adapt according to the presented license agreement and reference the original author.